The larger firms in an industry have market shares of 20%, 10%, 5%, 18%, 8% and 12%. The largest firm has now acquired the smallest of these firms. What is the four-firm concentration ratio after this acquisition
After the acquisition, the four-firm concentration ratio is 72.
The four-firm concentration ratio measures the total market share of the four largest firms in an industry. In this case, the largest firm, with a 20% market share, acquires the smallest firm with a 5% market share, resulting in a combined market share of 25% for the largest firm. Adding this to the next three largest shares (10%, 12%, and 18%) gives a total of 72%.
This choice correctly accounts for the acquisition where the largest firm increases its market share from 20% to 25% after absorbing the smallest firm. Therefore, the total market share for the four largest firms becomes 25% (largest) + 10% + 12% + 18% = 72%.
This option incorrectly sums the top firms' market shares. It does not consider the increase in market share for the largest firm after acquiring the smallest firm, leading to an underestimation of the four-firm concentration ratio.
This choice also miscalculates the concentration ratio. It fails to account for the acquisition's effect on the largest firm's market share, leading to an inaccurate total when summing the top four firms.
This option represents an even greater misunderstanding of the market shares involved. It does not reflect the correct market shares of the four largest firms post-acquisition, resulting in a significant underestimation of the concentration ratio.
The four-firm concentration ratio is essential for understanding market dynamics and competition levels within an industry. Following the acquisition, the correct calculation reveals a concentration ratio of 72, highlighting the dominance of the largest firms. This ratio indicates increased market power and potential implications for market competition following such mergers and acquisitions.
Related Questions
View allWhich is an example of a variable cost in production
What accurately characterizes the natural rate of unemployment
Which characteristic is true for a business experiencing a short-term...
What does the demand for a good refer to in economics
What will result in a decrease in the supply of motorcycles
Related Quizzes
View all0PC1 Planning Instructional Strategies for Meaningful Learning Version 1
AP01 Elementary Literacy Curriculum Version 1
AQ01 Applied Healthcare Statistics C784 Version 1
ASO1 Introduction to Statistics for Research Version 1
BJ01 Introduction to Business Finance Version 1
C172 Network and Security Foundations Version 1
C180 Introduction to Psychology Version 1
C180 Introduction to Psychology Version 2
CKC1 Introduction to Humanities Version 1
DZ01 Mathematics for Elementary Educators III MATH 1330 Version 1
- ✓ 500+ Practice Questions
- ✓ Detailed Explanations
- ✓ Progress Analytics
- ✓ Exam Simulations